In order to determine your best option concerning the marital homestead, it is important to understand what it costs to live in the house on a monthly basis and the value of the marital equity in the homestead.

In terms of housing expense, best to make a simple budget outlining all expenses associated with the home, including the mortgage principal, taxes and insurance. Other expenses to consider include a second mortgage (or line of credit payment), maintenance expenses (such as snow removal or lawn care), cleaning expenses, major repairs, heat, water, gas, garbage, phone, cable and internet.

In terms of determining the marital equity, you must first determine the value of the residence relative to any encumbrances outstanding against the property. In determining value, we often rely on a realtor’s market analysis, a formal appraisal or the tax assessed value. The most recent mortgage statement(s) will provide the value of the present offset against the property.

Just because equity may exist in the home does not mean that the equity is equally divided among the parties. The non-marital interests of each party must be considered. Non-marital interests typically involve one party making some, or all, of the down payment on the residence with pre-marital home equity or savings. In other cases, a non-marital interest is created by spending down the mortgage with an inheritance received during the marriage.

The actual equity is likely to be less in light of potential sale costs. Realtors typically charge between five and seven percent for their services. In addition, some expense may be necessary to make the home marketable.

Another consideration involves the tax implications of sale. The sale of real estate usually does not result in a tax consequence. But, if you have moved a lot in recent years, or the relevant property is not your primary residence, capital gains may apply.

Finally, it makes sense to explore general market trends. Does it make sense to hold the home if, as in the recent past, property values are falling?

The disposal of residence can take three forms: (1) traditional sale; (2) short sale; and (3) foreclosure. The only method upon which parties realize equity, naturally, is a traditional sale. Both a short sale and foreclosure will result in no equity to divide, along with a hit to the owner’s credit rating.

The sale proceeds, so long as entirely “marital” are typically divided equally among the parties following sale. In some cases, however, one spouse will receive a portion of the other spouse’s equity as an offset for some asset of value taken by the other spouse.

If one of the parties wishes to remain in the homestead, they must somehow satisfy the equity interest of the other party. This can be accomplished in a number of ways, including: (1) a refinance and payment to the exiting spouse; (2) an installment loan payable to the exiting spouse; (3) allocation of some other asset of value in exchange for the equity of the exiting spouse; or (4) a lien in favor of the exiting spouse.

As the housing market recovers, couples are, once again, facing the prospect of dividing equity within their home as part of the marital property distribution. Do you have questions about an issue surrounding the treatment of home equity? Contact a MN divorce lawyer with our firm for a consultation.